Equities report: Fed’s interest rate decision in focus

US stock markets moved higher since our last report last week. Today we are to focus on the release of the Fed’s interest rate decision, yet also have a look at Microsoft and Intel and for a rounder view conclude the report with a technical analysis of US 500’s daily chart.

The Fed’s interest rate decision

The main event for Equities traders may be the release of the Fed’s interest rate decision later today. The bank is widely expected to cut rates what remains to be seen is to which degree the interest rate is to be reduced. The market seems to be currently pricing in a 50 basis points (bp) rate cut by 63% according to Fed Fund Futures (FFF), while the other 37% implies that a 25 bp rate cut is also sufficient. Yet FFF also implies that the market expects further lowering of 75 bp of the Fed’s interest rate by the end of the year. Hence the dovish expectations of the market are intense and imply that not only the width of a possible rate cut by the bank is important, but also the bank’s further intentions. Should the bank actually deliver a 50 bp rate cut as expected we may see US equities gaining some support, while a 25 bp rate cut would contradict market expectations and could weigh substantially on US stock markets. As for the Fed’s intentions we highlight four elements. The first would be the bank’s forward guidance, included in the accompanying statement. Should the document be characterised by a clear cut dovish tone, thus verifying the market’s expectations, we may see equities getting some support and vice versa. The second would be the new dot plot, showing the expectations of Fed policymakers about where interest rates are to land by the end of the year, the next year, the year after that and beyond. Should Fed policymakers show that they expect the interest rate to land higher than what the market expects we may see the dot plot weighing on stock markets. The third element of interest for market participants, may be the bank’s macroeconomic projections. Should we see a more optimistic outlook for the US economy, supporting the scenario of a soft landing and CPI rates easing further we may see US stock markets rising. Last but not least, we highlight Fed Chairman Powell’s press conference half an hour after the release of the Fed’s interest rate decision. Should the Fed Chairman maintain a clearcut dovish tone in his press conference we may see US equities getting some support, while any hesitation contradicting the market’s expectations for extensive rate cuts to come could have an adverse effect on US equities.

Microsoft’s buyback scheme and multibillion mega deal

Microsoft’s share price has been rallying since the 10th of September correcting a bit lower yesterday. On a fundamental level, we note to issues on a fundamental level that may continue to support the share’s price. The first would be the company’s announcement on Monday, that its board has approved a new share buyback program of up to $60 billion. Furthermore we highlight the plans of Blackrock and Microsoft to raise more than $100 billion through a fund to invest in artificial intelligence infrastructure. MGX, the Abu Dhabibacked investment company, will be a general partner in the fund, while AI chip firm Nvidia, opens new tab will provide expertise, as per Reuters. The plan includes the building of data and energy centers which would increase the computing power and at the same time overcome the high energy needs. Given the market’s high interest in AI, we expect the news to intensify the support for the share’s price.

Intel’s AI chips deal with Amazon

Intel’s share price rose yesterday yet corrected lower during the day. We make a start for Intel by noting that the company, announced late on Monday that it was pushing back the construction of a major microchips plant in Magdeburg, Germany and another investment in Poland by two years as it tries to shore up heavy losses. The news are definitely a set back for Intel in tis efforts to expand business. On the other hand in the same announcement the company mentions “Today we announced that we will expand our strategic collaboration with Amazon Web Services (AWS). This includes a co-investment in custom chip designs, and we have announced a multi-year, multi-billion-dollar framework covering product and wafers from Intel”. The news overshadowed the postponement of the plants in Germany and Poland and seemed to provide support for the company’s share price and we see the case for the share’s price to remain supported on a fundamental level.

기술적 분석

US500 Cash Daily Chart

• Support: 5440 (S1), 5200 (S2), 4935 (S3)
• Resistance: 5675 (R1), 5900 (R2), 6150 (R3)

S&P 500 edged higher yesterday, testing the 5675 (R1) resistance line, aiming for new record high levels. We expect the direction of the index to be heavily affected by the Fed’s interest rate decision later today. On a technical level, we note the bullish tendencies of the index. The RSI indicator continued to rise above the reading of 50 implying the build-up of a bullish sentiment among market participants for the index. On the other hand, there seems to be some fatigue among equities bulls as the upward differentials in the index’s daily movement seem to be narrowing. For the time being we expect the index to stabilise somewhat. For a bullish outlook we would require the index to clearly break the 5675 (R1) resistance line and we set as the next possible target for the bulls the 5900 (R2) resistance level. A bearish outlook seems currently remote, yet should the bears take over, we may see the index falling and breaking the 5440 (S1) support line and start aiming for the 5200 (S2) support base.

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